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No significant capital rush amid investor trepidation: Willis Re execs

12th October 2020 - Author: Luke Gallin

While it’s likely that more fresh capital will look to enter the re/insurance market in light of improving market conditions, investor trepidation remains amid continued financial market uncertainty and volatility, according to executives at Willis Re, the reinsurance broking of Willis Towers Watson (WTW).

“We simply don’t see capital rushing in,” said James Vickers, Chair of Willis Re International, speaking with Reinsurance News about the potential for an influx of capital into the space once capital market volatility subsides.

“Some fundraising has taken place, but it has been insufficient to change the course of the market, so far at least. Some of it is destined to strengthen reserves following losses incurred during the recent soft-market conditions, and some of it will be used to write new business at more attractive prices,” he continued.

So far, market players that have raised capital to shore up reserves or position for growth in a firming marketplace includes, Hiscox; Lancashire; Beazley; RenRe; Fidelis; and more recently, Compre.

At the start of the year, conditions in the reinsurance sector turned more favourable for sellers following a prolonged softened market, during which margins diminished against a backdrop of large catastrophe losses, subsequent trapped capital issues and a stressed retrocession market.

The COVID-19 pandemic looks to have accelerated the positive rate momentum that’s gained traction through the year, and the expectation is that the factors at play will persist into 2021 and potentially beyond. As a result, some capital raising has taken place and although some predict a flurry of startup activity as well, Willis Re feels that the volume of new capital is unlikely to be substantial.

“I am not sure significant amounts of capital will rush back in. Fresh capital has been found for existing and new ventures (perhaps now looking to back proven experience rather than promised expertise), and more will come, but the trepidation remains,” said Paddy Jago, Global Chair, Willis Re.

“Investors are more aware and alert than before. New capital has been stung by getting into an industry which it doesn’t fully understand, suffering through withheld funds being and becoming illiquid,” he added.

As noted by Jago, money is always looking for a “new return”, but in the current climate, new capital probably has some apprehensions when looking at the re/insurance industry.

“Investors aren’t falling over each other to deploy their money in insurance (as a play on the diversification) as was perhaps demonstrated by the sector after the 2008 crash. It’s worth pointing out that at the outset of Covid-19, when equity markets crashed and crumbled, and the insurance media were talking of a loss up to $140 billion, I suspect that a lot of potential investors really wondered if the insurance industry really does offer diversification,” explained Jago.

Tony Melia, Chief Executive Officer (CEO) of Willis Re International, expressed uncertainty at how much fresh capital will enter the space amid an ongoing period of great economic volatility and uncertainty.

“We’ve all heard that contraction and instability could last for two or three years. The capital markets will have ups and downs, winners and losers, but I am not convinced that the reinsurance market is an attractive enough destination to be at the top of many people’s investment agenda,” said Melia.

Adding: “We will perhaps have to demonstrate some reasonable, consistent profit before we look attractive again. Some companies have completed relatively small, focussed capital raisings, but in general I do not expect investors will be rushing back.”

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